Unlike differentiation and cost leadership strategies, focused strategies focus on a narrow market segment. The target segment, or niche, is determined by the geographical location or special requirements for the use of the product or its characteristics imposed by this market segment. The goal of a focused strategy is to meet the needs of the buyers of the target segment better than the competition. Focused strategies provide a competitive advantage if a company’s costs in a given niche are lower than those of competitors, and its products meet the needs of consumers better than those of competitors. A focused low-cost strategy is beneficial if there is a market segment whose satisfaction requires lower costs than servicing the entire market. A focused differentiation strategy is convenient if there is a segment that requires specific product properties or capabilities. Seller.
Here are examples of companies that have chosen different focused strategies:
eBay (electronic auctions); Porsche (sports cars); Cannondale (elite models of mountain bikes); Horizon, Comair and Atlantic Southeast (passenger airlines with low traffic with a range of 50-250 miles); Jiffy Lube International (refueling and lubrication of cars, minor repairs); Enterprise Rent-a-Car (rental of cars to replace the repaired ones); Bandog (tire restoration; the company actively offers its services in hundreds of truck parking lots); Motel 6 and Ritz-Carlton (hotel business) [15 pp.184-185].
A focused low-cost strategy is widely used in business. Manufacturers reduce marketing, distribution and advertising costs by switching to direct sales to retail stores and chain stores, supplying standard branded goods at a discount. The combination of cost advantage and servicing narrow niches of the market gives good results if the company finds ways to reduce costs and limits the target audience to a certain market segment.
At the other end of the market spectrum are companies such as Godiva Chocolates, Chanel, Rolls-Royce, Rolex, which have created focused differentiation strategies focused on elite market segments that require products and services with first-class properties. In any market, there are segments where buyers are willing to pay more for additional properties of goods, which allows companies to implement focused differentiation strategies that serve the elite of the consumer audience [15 pp.185-186].
The effectiveness of focused strategies of low costs and differentiation is determined by the presence of certain conditions:
sufficient size of the segment, providing profit and growth prospects; lack of interest in the segment on the part of the majority of industry leaders (this condition reduces the likelihood of competition with the main rivals); a sufficient number of segments and niches in the industry, allowing you to choose an attractive segment that corresponds to the capabilities and resources of the company; lack of competition for servicing the segment (this condition reduces the number of competitors in one niche of the market); the company that wants to serve the segment has the appropriate experience and resources.
If the industry market consists of numerous segments, competition of varying intensity is both between individual segments and within them. For a company that has chosen a focused strategy, it is important to choose the right niche: it must be competitively attractive and correspond to the capabilities and resources of the company. Since, even a small company, having chosen a focused strategy, will achieve a competitive advantage if its products have attractive properties for this segment, if it has a successful competitive position and has opportunities to meet the needs of consumers of the selected segment.
The competencies and capabilities of a company serving a market niche create entry barriers that make it difficult for competitors to penetrate the target segment. Competition in the target market segment is weaker if there are few competitors, and if the needs and requirements of the buyers of the segment differ significantly from the needs and requirements of buyers of other segments. In addition, a company’s exceptional niche service capabilities can discourage potential competitors from competing with it. The same factor makes it difficult to penetrate the target segment of substitute goods. Pressure from strong buying companies (even if they exist) in narrow segments is low, including due to their reluctance to do business with competitors with relatively few opportunities.
Disadvantages of a focused strategy:
First, there is always the possibility that competitors will find ways to displace the company from a narrow target segment, for example, by offering a product that better meets the needs of customers, or by obtaining competencies and resources that exceed the competence and resources of the company; Secondly, the needs and preferences of consumers of the target segment can be transformed into the needs and preferences characteristic of buyers of most segments. Erasing the differences between consumer segments and reducing entry barriers in target niches open the way for competitors; Thirdly, the segment may be so attractive that it will attract the attention of many competitors who, in the process of development, will significantly reduce its profitability.